What happens if for any reason you can't pay your mortgage? In the worst case scenario, you could lose your home. Fortunately, there is an option to cover yourself: adding loan amortization insurance to your mortgage.
What does loan amortization insurance cover?
This insurance covers mortgage payments in the event of an unforeseen event, such as disability or death.
In other words, loan amortization insurance takes care of amortizing or paying off that loan.
How does mortgage amortization insurance work?
The way a repayment insurance works is very simple: when one of the situations provided for in the policy occurs, the insurance is activated to cover the payment of the loan. It's that easy.
From there, there are loan amortization insurances where the premium is paid every year and others with a single premium. With the latter, you will pay the full price of the insurance when you take it out. It is as if you were advancing all the money at the beginning and there are financial institutions that add this money, which is usually not a small amount, to the amount of the mortgage.
Is it mandatory to take out amortization insurance with the mortgage?
Not at all. It is not mandatory to take out amortization insurance, nor is it mandatory to include life insurance in the mortgage.
In fact, of all mortgage insurance policies, only damage and fire insurance is mandatory. In addition, these coverages are usually included in home insurance along with other useful ones that insure the contents and the building of the home against other dangers.
Isn't it like life insurance?
Loan amortization insurance is like life insurance, but it is not like mortgage life insurance. They are kind of like cousins, similar, but different. Now you will understand why.
Beyond the coverage that you can include (death, permanent disability, absolute disability, etc.), the difference between the two policies is in how they work.
Life insurance pays the amount stipulated in the policy to the beneficiary. This may sound somewhat technical, but it only means that if something happens to you, the mortgage money will be paid to the person named in the loan, which can be your heirs or the financial institution (usually the latter).
What about mortgage payment protection insurance? This policy will not give the money to anyone in particular, it will be responsible for paying the outstanding debt up to the contracted amounts. There is no beneficiary, only the payment of a debt.
This formula, which may seem almost the same as the previous one, has certain advantages such as avoiding you paying any type of tax on that money, for example.
Is it worth taking out this type of insurance?
As with mortgage life insurance, it is a personal decision that must be made based on the level of protection you need.
Having this type of insurance gives you the peace of mind of knowing that if something unexpected happens, you and your family will be covered, at least as far as the mortgage is concerned. The payments will continue to be paid and you will not lose the house.
This protection is most interesting during the first years of the mortgage, which is when less money is usually saved and the impact of any unforeseen unfavorable event can be greater, although it remains useful throughout the loan.
Amortization insurance, like life insurance, is a way of ensuring the stability of your family and something as important as your home. If you need additional protection in case you become unemployed, for example, there are also payment protection insurances that will take care of paying the mortgage payments.